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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 14998 \ August 1, 1996
U.S.A. v. Joseph Polichemi, Lyle Edward "Pete" Neal, Oscar
William Olson, John Joseph DeVincens, Charles R. Padilla, Larry
P. Oesterman and Edward W. Russey, N.D. Ill., No. 94 CR 555,
filed August 15, 1995.
The Commission and the U.S. Attorney's Office for the
Northern District of Illinois announced that on July 26, 1996,
after a ten week trial, Joseph Polichemi (Polichemi), Lyle Neal
(Neal), Oscar William Olson (Olson) and Charles Padilla (Padilla)
were convicted of various criminal charges for their involvement
in multiple fraudulent schemes involving purported "Prime Bank
Instruments." These schemes included the Chicago Housing
Authority's (CHA) $14 million investment in the Konex Roll
Program, the subject of an action previously brought by the
Commission against Polichemi, Neal, Olson and others for
violations of Section 17(a) of the Securities Act of 1933 and
Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 thereunder. Specifically, Polichemi was convicted of one
count of conspiracy, eight counts of money laundering and fifteen
counts of wire fraud. Neal was convicted of one count of
conspiracy, five counts of money laundering, thirteen counts of
wire fraud and three counts of perjury. Padilla was convicted of
thirteen counts of wire fraud and three counts of perjury.
Finally, Olson was convicted of three counts of money laundering.
The perjury convictions against Neal and Padilla resulted from
their sworn testimony in connection with Commission's
investigation concerning the Konex Roll Program. Larry Oesterman
and Edward Russey plead guilty to charges relating to the
fraudulent schemes before the trial. John DeVincens was
acquitted of all charges against him. In a separate criminal
action, John Lauer (Lauer), CHA's Director of Risk Management and
Benefits, plead guilty to wire fraud, mail fraud and obstruction
of justice charges.
The criminal charges relating to the Konex Roll Program
parallel the conduct alleged in the Commission's action filed in
the United States District Court for the Northern District of
Illinois on June 21, 1994, against Polichemi, Neal, their
respective companies, Copol Investments Limited (Copol), Konex
Holding Corp. (Konex), and Lauer and his company, Clifton Capital
Investors L.P. (CCI). The Commission's Complaint and Amended
Complaint, which added Olson as a defendant, alleged that from
January 1993 to June 1994, Konex, Neal's company, raised at least
$12.5 million from the CHA through the offer and sale of
investments in the Konex Roll Program. In fact, the purported
Roll Program, which was designed to pool investor funds to
purchase and trade in "Prime Bank Instruments," was nothing more
than a scam to defraud investors. Thus, the Complaint alleged
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that Polichemi, Olson and Neal, through, Copol and Konex, made
false and misleading statements regarding the use of CHA proceeds
and the risks and returns associated with the investment.
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The Complaint further alleged that Lauer, among other
things, failed to disclose to the CHA the role of his private
company, CCI, in the administration of CHA's investment, his
receipt of compensation and his resulting conflict of interest.
Moreover, the Complaint alleged that Lauer made false and
misleading statements to prospective investors concerning the
rate of return CHA earned and the circumstances under which the
CHA invested in the Roll Program.
On June 21, 1994, the Honorable Wayne Andersen of the U.S.
District Court for the Northern District of Illinois entered an
order in the Commission's action temporarily restraining and
enjoining the defendants from future violations of the antifraud
provisions of the federal securities laws and, among other
things, froze their assets. On July 29, 1994, the Court entered
an Order of Permanent Injunction and Other Equitable Relief by
Default against Polichemi, Neal, Copol and Konex. On October 24,
1995, the Court entered an Order of Permanent Injunction and
Other Relief against Lauer and CCI. On June 7, 1996, the Court
entered an Order of Preliminary Injunction and Other Equitable
Relief against Olson. The action remains pending as to Olson.